Whether at the casino or the race track, the house always wins. That’s the way it has always been, too, with Internet advertising. Nearly all Internet ad dollars are spent in two ways: 1) buying ads from advertising networks whether that network is Google or Yahoo or even IDGTechNet, which sells space on this rag, or; 2) buying search terms — the right to have your ad shown every time someone searches on the word hermaphrodite, for example. Network profit in those transactions comes from arbitrage — buying low and selling high. But what if there was a more efficient way to buy and sell Internet ads? As of this morning it looks like there is a better way called Clickochet (for Click Richochet), the first ad trading network.

Clickochet is the baby of my old friend Paul Tyma and I have no financial or other interest in the product or the company. It’s just something cool to write about. I want you to know about it because it is different, probably a lot more efficient than competing solutions, and it might just change the world.

Paul is a great programmer who spent a number of years working as a senior developer at Google where his major achievement was a major rewrite of Gmail. He is also the author of Mailinator, one of the first and best anonymous e-mail services. But the idea for Clickochet sprang not from anything at Google, but from a Christmas gift Paul gave to his girlfriend Tanna, who runs a celebrity gossip blog called StarSnarks.com.

“She started it last fall and is pretty passionate about it,” Paul explained. “At some point she put up AdSense on the site and, no kidding, was making about five cents a day. She didn’t have a ton of traffic so it wasn’t terribly surprising. As a Christmas gift I bought her $100 worth of AdWords to help her get traffic. With no exaggeration this campaign lasted three days and yielded a total of 100 clicks. If you do the math, I successfully turned $100 into about 15 cents by converting to and from ad impressions.”

Ad networks work by selling ads, but if you close the loop between publishing and advertising there is an exchange rate between money and ad impressions. Existing ad networks create a market inefficiency in that exchange to make money. Using Tanna’s example, above, $100 bought $0.15 worth of ad impressions. That’s $99.85 in gross profit there, some of which goes to web sites participating in the program but most goes straight into the massive fuel tanks of Eric Schmidt’s G5 jet.

That is the way Google makes so much frigging money.

All web sites want traffic, yet I won’t buy ads for cringely.com. Why not? Because it is a non-economical transaction. The only revenue I get from this site is from ads, but as the example above shows it would be insane for me to buy ads to sell ads. That’s a perpetual motion machine and perpetual motion machines are always defeated by friction — in this case the friction of the ad network’s revenue cut. This is the market inefficiency that ad networks introduce. Ad networks provide value in other ways, but this closed-loop is not it.

It might make sense to buy ads for this site if I was offering more than just ideas. If I was selling diamonds or penis enlargement pills, okay, but buying ads just to sell ads is a fool’s game. As always, though, there are plenty of fools.

That’s when Paul came up with the idea of trading ad impressions. Tanna could show an ad for other small sites like hers and those other small sites could show her ad. It’s like a link exchange but way smarter because it isn’t just for Search Engine Optimization (SEO). It’s an ad trading network.

Clickochet is free, social, and tied to Facebook and Twitter. Clickochet is a social ad community for web site owners like me for whom buying ads doesn’t make economic sense.

“I realized right away that ad-for-ad didn’t exactly work,” Paul said. “First, when you show a normal text banner ad, you’re not just showing one ad — you are showing three. There are three text ads inside a 728×90 banner ad creative. I can pass that multiplier back to the Clickochet member. So to start, if Tanna shows 1000 banners in one day, I can show 3000 of her smaller ads across the network.”

Enter at this point the inevitable honking-big algorithm to make this all work, because there are many factors that come into play when doing transactions like this — factors like ad placement, ad quality, and even my reputation as a journalist — to determine the exchange rate for each ad. So instead of taking the traditional ad network route of converting clicks directly into dollars (CPM), Clickochet converts ad impressions into virtual currency.

Here’s where it gets very geeky and leaves traditional ad networks in the dust, because where a DoubleClick would take the money and run, Clickochet introduces a clever multiplicative effect.

On Tanna’s blog right now she’s showing a skyscraper containing five ad-equivalents. So showing one ad on Starsnarks could get up to five ads for her site showing on the network. She can get more out than she puts in.

There are 40 billion webpages in Google’s index, almost none of which make a profit by selling ads. Clickochet is, in some respects, an ad network for the long tail — the 39 billion web pages where participating in the present monetary ad system makes little sense. For those pages gaining traffic is important and forgoing nickel-a-day ad revenue is painless.

Clickochet removes the market inefficiency that ad networks create to make money. There are two facets to that inefficiency. One is money: the networks take their cut. But the other is time. If you took your AdSense money and paid into AdWords with it you’d be delayed 30 days because Google waits that long to pay and so do all the other networks. You finance Google. But Clickochet is an instant transaction. The moment you get an ad impression, you can configure the system to either bank the credits, or spend them immediately. Show an ad on your site, and 3 of your smaller ads show nearly instantly elsewhere on the network.

And unlike the $100 AdWords campaign Paul bought for Tanna, a Clickochet campaign runs indefinitely. You get out of the system only what you put in, but on a perpetual basis. If Tanna is only putting 1000 ad impressions a day into the system, she won’t get 1000 new users overnight, but will increase her traffic over time.

Because Clickochet converts ad impressions into virtual currency, you can save them instead of spending them right away. Say you are launching a new product or even a new company in six months. You can run ads on your knitting blog, bank the credits, then spend all your money in a big ad blast when the product or company is ready to go. Your friends and family investors can even pay you in ad impressions if they like.

Here’s another even more subtle effect. I have a link on this site for portraitquilts.com, which is run by my little sister. She wants the link mainly for Search Engine Optimization but doesn’t mind if you buy a quilt or a pillow with Grandma’s picture on it (or Elvis’s). I get a lot of traffic here, which is good for Sis to some extent, but my readership is also very stable. The same people keep coming back week after week after week. Eventually you’ll stop clicking on that quilt link and my good brother brownie points will cease to accumulate. The link will go stale as advertising, if it hasn’t already.

With Clickochet, however, I could distribute ads for my sister’s site elsewhere on the ad network — perhaps even on sites more relevant to photo quilts than this blog. I can directly convert my ad impressions into my sister’s. To be fair, Google would let me do this too — make money off cringely.com and buy ads for portraitquilts.com — but I’d never do that because it would be a losing proposition.

Clickochet is a great idea and since it is coming from a great developer I’m pretty sure it will work technically. But can Clickochet gain critical mass? That’s the problem faced by all new networks: they need lots of traffic to succeed but, absent some viral effect they don’t have any traffic to start. PayPal famously handled that simply by sending people money, but most networks can’t afford that gimmick so they die. What makes Clickochet any different?

The clever answer here is that Clickochet may well have all the mass it needs to start, courtesy of Paul’s other site — Mailinator.com.

“I’m doing a virtual economic stimulus,” Paul explained “I’m injecting Mailinator’s several hundred thousand ad impressions into the system every day, without taking any out. Active users could get a lot of free ad impressions.”

Mailinator’s ad inventory allows Clickochet on its first day (today) to start where it might otherwise be a week or a month into viral growth. Paul hopes that’s past the most likely failure point.

Yeah, but how does Clickochet expect to make money?

Initially it will be as a cheaper competitor to AdWords. Many sites will find this to be a new (and cheap) venue for advertising. They will simply buy ads on the network just as they would through Google. But where the term “mesothelioma” costs about $50 on AdWords, it could be much cheaper on Clickochet.

“We’ll level the cost of ads, ” says Paul. “This won’t help with cheap search terms but creates a new outlet for currently expensive ones. With the right ad sales team in place what percent of that market could we capture?”

We should all want Clickochet to succeed just the same way we want Southwest Airlines to start serving our local airport — because it will drive down the profit margins for all ad networks, increasing transparency and efficiency and saving money for us all.

The house will still win, but their profits won’t be so obscene at our expense.

66 Comments

Bob,
A very interesting find. You’re second-to-the-last paragraph sums it all up. We all benefit from another competitor in the pool.

Thanks!

David W.
May 10, 2011 at 5:53 am

One of the things that gets me about ads in many free iPhone and Android games is that they are mainly for other free games that also hope to make money selling ads — mainly about other free games that make money selling ads. In the end, the Android/iOS ad market reminds me a lot about the financial shenanigans of first decade of the 20th century.

This sounds like a bunch of websites that hope to make money by selling ads to other free websites that hope to make by selling ads.

This sounds quite promising. Google and Yahoo currently charge an arm and a leg. If successful, this could revolutionize the whole online ad industry. I hope you friend succeeds, because then this monopoly-duopoly will hopefully end.

Of course, if he successful, then the big boys will want to buy him out in order to remove competition from the marketplace. Sometimes you just can’t win.

@david — Not quite as bad as the joke about folks taking in each other’s laundry for a living… I can see a viable business model in there. Still some friction, but at a much lower level. Actually, I wish *I’d* thought of it.

Looks to me like a great deal, and may help me bootstrap some of my own sites into greater visibility at a (much) lower cost than adwords. One of the main reasons I have never even tried buying adwords is the “free” $100 teasers that resemble the “free” hit of crack offered by your friendly neighborhood pusher.

I have a favorite saying, “Nothing wrong with _______ that a good dose of viable competition wouldn’t cure in a heartbeat.” I usually put “Ebay,” “Paypal,” “AT&T,” or “T-Mobile” in that blank, but “Google” works, too.

Tom Tavoy
May 10, 2011 at 7:00 am

“IDGTechNet … sells space on this rag”

Really? I was unaware you have ads on this site. I just looked at Tanna’s site and don’t see any ads there either. It could be something wrong with my browser.

Bevan
May 10, 2011 at 7:23 am

@Tom – I see two images on the right advertising the “HTC Arrive, Windows Phone”.

@David – I interpreted it more as this is for small sites that just want more advertising for themselves at a reasonable price *without* trying to hop on the “make tons of cash from ads” bandwagon that mostly makes cash for the Ad Network.

I’m signed up and about to start delivering ads – you’re right, the economics of using Adwords for those of us getting most of our site’s revenue from Adsense has even had me ignoring the “free” $100 offers from Google – the time invested isn’t worth the return.

Clickochet went live only hours ago. No, I am not using it yet, though I might. As a guy who actually makes money from ads I’d like to know more about that part: how do I make money from Clickochet?

Jim
May 10, 2011 at 1:22 pm

You don’t – this program, as you point out, is for product web sites, sites that have something tangible to sell and therefore need to attract eyeballs. There is little return in any advertising scheme for simply attracting eyeballs to an information/commentary blog aside from building the credibility/following of an author. That is worth something as long as you keep writing but once at your level of awareness, the content should maintain the readership. Sincerely, Captain Obvious.

lee
May 13, 2011 at 5:06 pm

It works if he shows some traded ads and some paid ads. The trades drive traffic to him and the paid ads put money in his pocket. Finding the right balance is the tricky part as in any business where reducing your income per sale (= page displayed) increases your volume (= number of viewers).

Chicken
May 10, 2011 at 9:54 am

Clicking on one ad leads me to three more. The net effect will be more ads per page. I can only look at so many pages per day, and I can only be interested in so many things.

The clutter and noise will drive people to seek more tranquil surroundings.

John Dreese
May 10, 2011 at 10:05 am

I’ve advertised with both Google and Yahoo and to this day, my Yahoo advertising has never driven a single sale (I realize that means my ads probably suck). However, the same ads on Google drive all my sales. So I stopped using Yahoo and poured my resources into Google. However, my monthly Google costs have slowly grown from $90 a month to nearly $300 per month; without a commensurate growth in sales. I look forward to using Clickochet to help bring costs down.

Whoa… that sounds suspiciously like the Fed in the US. Pump in more money to grease the wheels of the economy. Is your friend Paul Krugman?

That is exactly the leverage Paul is hoping for. To kick start the virtual currency by lending money from his own bank. Clever investment of the eyeballs he already has. What is this new currency called, by the way? The Eyeball? How about iVotes

Actually, your first paragraph kind of lays out an inherent problem in Economics quite well.

That is, the supply side bias in transactions.

The old adage is, the rich get richer and the poor get poorer. The casino annololgy explains why. The rich don’t enter into a transaction unless they make money from it.

You buy bread because you need it. But the baker sells it because he makes money from the transaction. If he can’t make money, he goes out of business.

We learn from the Romans (and the ancient Egyptians) that over a long enough time, this trends leads to enormously concentrations in wealth. That eventually leads to the collapse of civilizations, or countries, and nice long dark ages.

In the case of the Romans, six senators owned half of North Africa. The rich and the powerful used their influence to avoid paying taxes. Since the rich and the powerful had all the money, the Roman government was underfunded. As a result they couldn’t raise a large enough army to control their borders. Sure they advantage of the Roman legion had thinned, but in the latter half of the fourth century and the early half of the fifth century they were holding back shiftless, landless, impoverished nomads. The concentration of wealth lead to the loss of political will to fund the Army necessary to maintain the state -so says Nobel Laureate and Economic Historian Douglas C. North.

Rome put up much larger Armies against Hannibal when it controlled only Italy, then it put up against the Huns when it controled all the resources of western Civilization when that civilization included North Africa and the western half of the Middle East.

This is of course relevent today because our society has become, like Rome top heavy, thanks to supply side bias policies over the last 30 years.

Because ‘the house always wins’ economic policy should always have at least a slight demand side bias to avoid wealth concentration – and in times like the present. massive demand side bias.

I suppose another way to explain the disparity between rich and poor is that although the poor subsist on meager living conditions, these conditions often require all of their annual earnings. Although the rich and super rich enjoy much better living conditions, these conditions usually require only a portion of their annual earnings. Thus, the wealth disparity continues to grow. (Simplified version from a retired accountant.)

Ronc
May 10, 2011 at 2:10 pm

“The house will still win, but their profits won’t be so obscene at our expense.” Did you really mean to say that? If the house still wins on average, why participate?

I’m afraid my eperience with ads has been limited to blocking them. While I understand the concepts of buying and selling ad space, I don’t understand what it means to buy or sell ads. Is that the same thing only with the word “space” removed?

Ben
May 10, 2011 at 3:02 pm

I’ve seen banner exchange networks come and go, most notably one that Microsoft bought and effectively killed. I hope this one does better.

I guess the biggest differences are the inclusion of the mail system’s banner traffic, and the potential of a 1:5 exchange ratio. All the old banner exchanges shrank their economies with each transaction, meaning you needed to show five impressions on your site to show your ad even once on another site.

If you are a publisher, AdWords only works if you have a product or service to sell — or a really good affiliate partnership. As you said, if AdSense is the only way that you monetize your website’s content, it’s a losing bargain, because you have maybe a 1% chance that a paid visitor will click any of your AdSense units.

It is also worth mentioning that Google discourages engaging in AdWords/AdSense arbitrage and will ban publishers who attempt to engage in this system without bringing high-quality content to the table — of course, what exactly Google will and won’t ban for has always been a mystery.

Using AdSense alone can work out great for the publisher, though. Google gives the publisher 68% of the revenue that it earns for each click. I would hardly call that unfair — it just takes experimentation with ad types and placements to figure out the combination that earns the most possible revenue for your website’s design and content. I have often thought about how fun it would be to experiment with the ad placements on Cringely.com, in fact, although I would guess that your ads are paid by impression rather than by click.

I am going to add one of my websites to Clickochet now. It sounds like a worthwhile system to try and I’m looking forward to seeing what happens.

Well, two days in, I thought I’d report back on the experience that I’ve had with Clickochet so far.

My ad was approved very quickly — within minutes. Maybe that’s because I was one of the first people to sign up. I added the ad unit to a website that gets plenty of traffic but doesn’t earn much money, and advertised a website that earns a fairly decent amount of money, but doesn’t get much traffic. Seemed like a good experiment to me.

In two days, my ad has apparently been viewed 38,428 times and received two clicks. Not a great ratio, so I’ll probably write some different ads and see if they do any better. I’d be interested to know whether other publishers have experienced better CTR.

The thing about Clickochet is that it uses this system of credits, and they don’t really tell you what a credit is worth. Somehow I’ve gotten 264,000 credits in two days, and I can’t figure out how that corresponds with page/ad views at all. Do I earn more credits when someone clicks an ad displayed on my site? Do I earn more credits when I use a larger ad block or place it in a more prominent location? Clickochet doesn’t tell me any of that — but more importantly, I also have no way of knowing whether the CTR of my ad is low because other publishers are burying their ad units at the bottom of the page or using some sort of auto-refresh to make their credits tick up and inflate ad views (Clickochet does say that they police against this, but do they really?). What specifically is the incentive for publishers to place ad units prominently? I could go for a lot more transparency all around. I want to know exactly how I am earning and spending these credits.

Overall, though, good idea, and I’ll keep at it. I could definitely see it working out well for the owners of Clickochet

Greg Bray
May 12, 2011 at 10:08 pm

Interestingly I have been using a similar system developed for exchanging Windows Phone 7 application ads for a few months now. In a tight vertical like WP7 it has worked VERY well, since you are basically exchanging ads in a network where everyone is a potential customer/user. You can check it out at http://www.adduplex.com/

It is interesting to see how this might work at a larger scale. I’ll definitely keep track of it, and it does make more sense then using AdWords

Never Be Without AdBlock
May 10, 2011 at 11:43 pm

Robert X. Cringely says: “As a guy who actually makes money from ads”.

Yes, of course. I was just being silly. But then again, I have so much junk…

Dan
May 11, 2011 at 12:43 am

During the 90’s and the 00’s in Eastern Europe such “banner exchange” and “impression exchange” networks were all the rage. The web was still young, there wasn’t much money in online advertising (as we know it today) so barters were the game.

Most of the networks were rudimentary and every Joe and their dog ran one. Eventually natural selection took over and they started to thin out and evolve. But most of them never reached the level of technical sofistication and polish that you’re describing, and then they died.

Here’s some of the factors that contributed to their demise. Kudos to Paul for his accomplishment and initiative; let him take these as a heads up or any way he likes:

* Competition from pure payed-for impression systems. When choosing between transforming traffic to eyeballs or to cold hard cash, most site owners went for the cash. Ironically, today, after a decade of price evolution, the very same factor works in reverse, driving Paul and you to (re)consider exchange networks over payed-for networks. But is the average site owner as savvy as you two, and willing to plan for long-term?

* Client fraud. This is a huge problem, hard to solve. The big networks (of any kind) spend a lot of resources on identifying fake impressions, and never manage 100%. Left unchecked, this can easily compromise the entire network.

* Network owner fraud. Cheating is in the human nature and, given an environment where you can get away with it, it will flourish. Eastern Europe was (and is) such an environment, so even reputable firms, even reputable branches of reputable Western firms, have their share of skeletons in the closet. Because they can. But, naturally, once clients get wind of a network massaging the numbers, they leave. Trust is hard to earn and easy to lose and all that. I don’t suppose Paul will ever endulge in such activity himself, but it’s a factor nonetheless and it had to be mentioned.

* Owners poisoning their own networks by injecting overwhelming amounts of articial impressions to be generated. The main culprit was impressions for money, the very thing that Paul is counting on to drive revenue. It’s easy to go overboard.

* Filtering features, such as “I don’t want my site to display certain ads” or “I don’t want my ad on certain sites”, as well as demographically-targeted ads, reduce the scope of sites/eyeballs where credits can be spent. You get deadlocks, participants who can’t spend their credits fast enough or at all.

* Most importantly: you need credit sinks (sites that are not in the network, do not generate impressions, but display them, thus venting excess credits). Without them, the network ends up generating more credits than it can spend within itself. Promotions, cheating, and payed-for injections will also see to that. Paul should be using Mailinator as a credit sink, not as impression generator. You don’t need generators; a simple 1:N promotion will achieve the same. But you need sinks, and they are almost impossible to come by; who’s gonna let you display ads for free on their site without asking for anything in return? They’re gonna want either money (there goes profitability) or network credits (thus negating their use as a sink).

Can this work and be profitable? Yes, but it has a delicate balance. You need a sink; the network’s total credits (including artificial injections) can never pass capacity of itself plus sink; you need to constantly keep network under capacity to have space to fill with payed ads; avoid filtering deadlocks; and the sink has to be a decent enough site so neither network members nor payed advertisers mind when their ads are displayed on it.

Actually this isn’t new or novel. There are few of these running already – one of which caters to CMS like WordPress and Joomla.

Buffle
May 11, 2011 at 8:53 am

By an irony the the most prominent ads on this site that I am getting is for Google Adwords! (Top and side)
Actually there is an interesting experiment awaiting here Bob; we all take a screen shot of the same page at the same time (you pick it) and send them to you for comment and enlightenment.

skeddy
May 11, 2011 at 9:23 am

as of right now (view my timestamp) the site is dodgy, the app link refuses to work and the site’s info email bounces.

is this app supposed to be live by now?

Charles Calthrop
May 11, 2011 at 10:15 am

Here is another fly in the advertising ointment. I don’t see your ads because I use ClickToFlash which is near the top of list of improvements in my web browsing experience. Readability is another.

Ronc
May 11, 2011 at 1:20 pm

Readability is great!!! Especially since it includes word wrap to eliminate horizontal scrolling. But it doesn’t work on blogs with multiple posts.

It seems like “banner exchange” , but how it works? For example, how it controls the banner displaying. Does any kind of banner can show on any site? It would be terrible if so.
Anyway, I’m interested in it, and hope to read more about it.

[…] day, for example, Cringely wrote about how this applies to advertising fees charged by Google. Here is the link. Matt Ingram writes about how app store managers (more particularly Apple) have the same lucky […]

“Existing ad networks create a market inefficiency in that exchange to make money.”

I have to disagree with that. They take a fee for providing a service. That service’s efficiency depends on how you use it.

So an efficient market would be buying $100 of ads and then expecting $100 or more return on reselling ads? It’s basically like you saying you should be able to buy a product from Walmart than then sell it on craigslist for the same amount.

You’re supposed to be using AdWords to generate revenue other than with AdSense. Google will definitely be trying to stop your arbitrage.

I tried Clickochet for about a week on my website http://www.clock2d.com
I created 5 ads.
In 7 days I got about 10,000 views and 2 clicks.
For me, Clickochet is useless.

Alec
July 20, 2011 at 1:44 am

Great article Bob!
Sounds like a great alternative for sites that provide information who just want traffic, dislike AdSense on their blogs or struggle to make enough money with it. Will give Clickochet a try soon!

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Another Bob
February 7, 2013 at 8:26 am

Bob,
Whatever happened to Clickochet? It seems to have vanished sometime in 2011. I found this to be an interesting idea and approach to co-op-like advertizing. Just curious if/why it didn’t succeed. OTOH, Parrot Secrets seems to be going strong.
Regards,
Another Bob

Nelson Emerson
May 10, 2011 at 9:52 am

It’s called an Ad Blocker.

Ronc
May 10, 2011 at 1:48 pm

I assume Tom knows about ad blocking and is joking. See the next one about fixing his browser.